Observations on economics, the academy, the wider world, and things that run on rails.

23.5.16

THAT VICTORY DIVIDEND RESOURCE CURSE.

It's the gift that keeps on giving. Edward McClelland, long before the Trumpening, resurrects the union-busting story behind the disappearance of family supporting jobs at union scale.

Let me tell you the story of an “unskilled” worker in America who lived better than most of today’s college graduates. In the winter of 1965, Rob Stanley graduated from Chicago Vocational High School, on the city’s Far South Side. Pay rent, his father told him, or get out of the house. So Stanley walked over to Interlake Steel, where he was immediately hired to shovel taconite into the blast furnace on the midnight shift. It was the crummiest job in the mill, mindless grunt work, but it paid $2.32 an hour — enough for an apartment and a car. That was enough for Stanley, whose main ambition was playing football with the local sandlot all-stars, the Bonivirs.

That $2.32 an hour in 1965 dollars, Mr McClelland helpfully notes, is $17.17 an hour in Obama bucks. That "lived better than most of today's college graduates" neglects the material condition of steel workers in Communist China, the Soviet Bloc, and much of the third world, where the Gospel of Development According to Walt Rostow (or was it Kwame Nkrumah?) included heavy industry, such as steel mills.

But Communism proved to be the longest route from early industrialization to early industrialization, and the emerging steel producers of the next decade were still picking up the pieces of their steelmaking capacity rendered unproductive by the Army Air Force.

Stanley’s job was more difficult, more dangerous and more unpleasant than working the fryer at KFC (the blast furnace could heat up to 2,000 degrees). According to the laws of the free market, though, none of that is supposed to matter. All that is supposed to matter is how many people are capable of doing your job. And anyone with two arms could shovel taconite. It required even less skill than preparing dozens of finger lickin’ good menu items, or keeping straight the orders of 10 customers waiting at the counter. Shovelers didn’t need to speak English. In the early days of the steel industry, the job was often assigned to immigrants off the boat from Poland or Bohemia.

“You’d just sort of go on automatic pilot, shoveling ore balls all night,” is how Stanley remembers the work.

Stanley’s ore-shoveling gig was also considered an entry-level position. After a year in Vietnam, he came home to Chicago and enrolled in a pipefitters’ apprenticeship program at Wisconsin Steel.

Yes, shoveling taconite simply required strong arms, but there were plenty of other employers hiring people for their strong backs (although the emphasis on youth fitness in the elementary schools of the era suggested creeping couch-potatoism, long before cable sports and wireless remotes).

So why did Rob Stanley, an unskilled high school graduate, live so much better than someone with similar qualifications could even dream of today? Because the workers at Interlake Steel were represented by the United Steelworkers of America, who demanded a decent salary for all jobs.

Collective bargaining can affect the division of the gains from trade, but that presupposes gains from trade to divide. And it's much easier to divide gains when there are monopoly rents. That was once the case in steel (and many other unionized Rust Belt industries) but not so much any more. Mr McClelland elides the history.

The greatest victory of the anti-labor movement has not been in busting industries traditionally organized by unions. That’s unnecessary. Those jobs have disappeared as a result of automation and outsourcing to foreign countries. In the U.S., steel industry employment has declined from 521,000 in 1974 to 150,000 today.

That's true in part. Managements of the legacy steel companies have long been in favor of preserving the monopoly rents, and making labor peace with the unions. But that $17 an hour wage in the United States looks like Eden Itself to a peasant looking at the wrong end of a mule in the third world. Thus steel requests for protection (and raising the specter of dumping) are as old as the re-emergence of the European and Asian steel companies. David Ignatius did an analysis for The Washington Monthly in 1979. The hard copy is still in my files (that's what happens when you do applied work on the steel business.) Jeff Jacoby says they're still at it.

Nucor, Steel Dynamics, United States Steel and other American producers should be told to man up and face their competition in the marketplace. They shouldn't be rewarded for hiring lobbyists and publicists to wangle special-interest privileges that no business has a right to claim.

To repeat: it's easier to buy labor peace if there are rents to dissipate. It's sad, though, that Nucor and Steel Dynamics are now among the rent-seekers. These used to be the disrupters. What Mr Stanley couldn't anticipate, and what Mr Ignatius didn't see -- I came across the phenomenon while conducting further research on the steel industry -- was that there were alternatives to making steel by shoveling taconite into blast furnaces (something about that doesn't sound right, anyway) that involved recycled scrap, of which there's plenty in the Rust Belt, at pay packets comparable to union scale, but without the restrictive union job descriptions.